Michael Porter and the CSR Revolution

There’s been a lot of talk about the “new CSR” – corporate social responsibility as something other than philanthropic giveaways with an eye on looking good. Which may be an unfair way to characterize corporate engagement in social good over the years – from Rowntree to Hershey to Tata – but the split between gross generosity after the fact (Carnegie will always be the best/worst example) and marginal generosity during, has been almost universal. We recently discussed this in the context of Gates and Buffet. The business of business, has gone the mantra, is to be successful as business. What owners of capital do with their profits is up to them.

The shift to a more holistic model has been underlined dramatically by Porter’s intervention. Those who have not labored through MBAs need to realize who this guy is. There’s probably no-one on the business school circuit who has been respected quite so much, for his brilliance and detailed-minded laying the foundations for clear-minded, strategic, business thinking.

Porter is in no way talking about sprinkling money around to good causes to burnish brand. He is after a whole new understanding of capitalism, in which “shared value” lies at the heart of value creation, and aligns innovation and the community’s good as well as profits. It all seems too good to be true, and the critics (cynics? perhaps, perhaps not) have been out in force. Even that beacon of balance The Economist found itself slyly quoting an off-the-record comment from Larry Summers at Davos: “Does he really believe this s***?”

Well, anyone who is aware of what’s what in 2011 knows that paradigms are being shattered all around us. One of the characteristics of a paradigm shift is that a lot of people – including generally the smartest, wisest, most respected – are sure it will not change. Someone comes along and challenges their view, and is derided all round. Until suddenly change has come. Then the outlier who sounded crazy becomes leader of the new pack, and everyone claims that’s what they were really thinking all along.

That having been said, this is pretty strong stuff. Listen to the Great Man: The concept of shared value recognizes that societal needs . . . not just conventional economic needs, define markets.” And more: this is not about redistribution of value – sharing what the firm has created – but “it is about expanding the total pool of economic and social value.” Porter brings this back to his approach to creating value: “Strategy theory holds that to be successful, a company must create a distinctive value proposition that meets the needs of a chosen set of consumers. The firm gains competitive advantage from how it configures the value chain . . . .” He argues that in recent decades companies have narrowed their vision of how to create value, and seen value as quite separate from the good of the community except insofar as consumers need to like the brand. At the same, time, visionary approaches have moved the other way. Fair Trade. Wells Fargo’s efforts to help consumers budget and cut debt. GE’s Ecoimagination lines. And innovation has been spurred in the process.

What to make of all this?

Three things are very clear. First, straws are blowing in a wind of change. How fast is it blowing? We do not know. It is unlikely to be the case that within X years, suddenly, social good will be the driving force of capitalism, the need for much of the government and private philanthropy will fall away, and we shall be close to heaven on earth. But a trend is a trend. Kudos to Porter for jumping ahead of the curve.

Second, as I have been arguing elsewhere, the speed of change and the impacts of emerging technologies are becoming more dramatic by the day – which means that the values of society are more and more important as new products and services are developed. Values create markets. The more revolutionary products become, the more important it will be for them to sync with the values of their prospective buyers. And, in parallel, with their risk tolerance: regulatory regimes themselves are ultimately the result of the values of the community.

Third, Porter has picked a great time to focus the issue in this way. There is widespread unease, inside and outside the business and finance communities, at the tendency of capitalism to focus on the short-term and to disjoin long-term good (even in simple economic terms) and short-term incentive (banks may or may not be too big to fail; why can’t bankers fail?).

So the stakes have been raised – both on the CSR end of this debate and on the future of capitalism itself.

Let him have the last word: “The principle of shared value creation cuts across the traditional divide between the responsibility of business and those of government or civil society.”